When Genius Failed

Audiobook Download $14.96

Random House Audio | Sep 04, 2001 | 553 Minutes | ISBN 9780375418563

  • Paperback$16.00

    Random House Trade Paperbacks | Oct 09, 2001 | 304 Pages | 5-3/16 x 8 | ISBN 9780375758256

  • Ebook$11.99

    Random House | Jan 18, 2001 | ISBN 9780375506444

  • Audiobook Download$14.96

    Random House Audio | Sep 04, 2001 | 553 Minutes | ISBN 9780375418563

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Praise

“A riveting account that reaches beyond the market landscape to say something universal about risk and triumph, about hubris and failure.”—The New York Times

“[Roger] Lowenstein has written a squalid and fascinating tale of world-class greed and, above all, hubris.”—Business Week

“Compelling . . . The fund was long cloaked in secrecy, making the story of its rise . . . and its ultimate destruction that much more fascinating.”—The Washington Post
 
“Story-telling journalism at its best.”—The Economist

Author Q&A

Q: Do you know if anyone from Long Term Capital Management has read WHEN GENIUS FAILED? Have you heard from any of them?

A: Yes. Some of Meriwether’s former partners, who are partners with him now in a new venture, asked me to make changes because they thought sections of the book would be harmful to their future fund-raising efforts. We, of course,
carefully reviewed and re-reviewed the accuracy of everything in the book but followed a "let-the chips fall where they would" policy with regard to what the reverberations would be.

Q: Was there any way to predict the demise of LTCM by looking at their investment style in the 1990s? Was anyone paying attention?

A: No — they had been a big success in the [19]90s. That was part of the problem. Their models looked backward and, based on that prior success, they invested as though they thought they couldn’t lose.

Q: Could LTCM have done more effective damage control to save the fund or did events spiral too quickly?

A: No — that was also part of the problem. Being so self-confident they also got way too big in positions, meaning that once the trouble hit it was impossible to get out without rocking the market even more. They were trapped.

Q: John Meriwether’s September 1998 letter to investors (informing them of their incredible losses) was surprisingly optimistic. Do you think he was being disingenuous at the time?

A: No. He believed his trades were good trades— that’s why he had gotten into them. As it turned out, they weren’t nearly so good as he thought — many have yet to recover. But that aside, he forgot that even good trades can go the
other way. This is what the book calls "the human factor." When people panic, markets don’t resemble what’s in a computer model. They go where the most nervous trader takes them.

Q: Why do you think the government has filed this incident away and refuses to address it in terms of regulation or legislation while Alan Greenspan simultaneously calls for less regulation?

A: We live in a time of unprecedented prosperity and bullishness. Regulations change (as during the New Deal) when times are bad. When times are good, nobody cares.

Q: The hubris you describe in WHEN GENIUS FAILED is more than most of us can imagine. Should the public treat Meriwether’s recent contrition (during interviews) as sincere?

A: You know, I wasn’t in the room. It’s certainly notable that he said nothing for two years and then issued a mea culpa two weeks before the book came out. But then, he has always been a private man. Perhaps he was being sincere but also self-interested — as are most of us most of the time.

Q: What is the lesson in WHEN GENIUS FAILED for the average American and investor?

Don’t believe the future will look like the past. History rhymes, as Twain said, it doesn’t repeat. Moreover, don’t think that more "sophisticated" investors possess some magic formula or key. They don’t, nor do all their computers and their "models." And finally, whenever someone is so confident that they run huge amounts of leverage—more than 30 times debt to equity in this case — run the other way. The one feature that does repeat, although in different forms, throughout financial history is that the people who get into trouble are the people who run up too much debt to survive a rainy day.

Q: Somehow it makes sense that LTCM was based in the secret, monied playground of Greenwich, Connecticut. Maybe a bunch of guys from Jersey would have handled this better.

A: Well I have a strong bias for Jersey guys, as you know. But I think what was important wasn’t the Greenwich locale per se but the partners’ distance from Wall Street. Seclusion fed the partners’ already inflated sense of superiority. If they had been rubbing elbows a little more with guys downtown, who knows?


From the Hardcover edition.

 

Q: Do you know if anyone from Long Term Capital Management has read WHEN GENIUS FAILED? Have you heard from any of them?

A: Yes. Some of Meriwether’s former partners, who are partners with him now in a new venture, asked me to make changes because they thought sections of the book would be harmful to their future fund-raising efforts. We, of course,
carefully reviewed and re-reviewed the accuracy of everything in the book but followed a "let-the chips fall where they would" policy with regard to what the reverberations would be.

Q: Was there any way to predict the demise of LTCM by looking at their investment style in the 1990s? Was anyone paying attention?

A: No — they had been a big success in the [19]90s. That was part of the problem. Their models looked backward and, based on that prior success, they invested as though they thought they couldn’t lose.

Q: Could LTCM have done more effective damage control to save the fund or did events spiral too quickly?

A: No — that was also part of the problem. Being so self-confident they also got way too big in positions, meaning that once the trouble hit it was impossible to get out without rocking the market even more. They were trapped.

Q: John Meriwether’s September 1998 letter to investors (informing them of their incredible losses) was surprisingly optimistic. Do you think he was being disingenuous at the time?

A: No. He believed his trades were good trades— that’s why he had gotten into them. As it turned out, they weren’t nearly so good as he thought — many have yet to recover. But that aside, he forgot that even good trades can go the
other way. This is what the book calls "the human factor." When people panic, markets don’t resemble what’s in a computer model. They go where the most nervous trader takes them.

Q: Why do you think the government has filed this incident away and refuses to address it in terms of regulation or legislation while Alan Greenspan simultaneously calls for less regulation?

A: We live in a time of unprecedented prosperity and bullishness. Regulations change (as during the New Deal) when times are bad. When times are good, nobody cares.

Q: The hubris you describe in WHEN GENIUS FAILED is more than most of us can imagine. Should the public treat Meriwether’s recent contrition (during interviews) as sincere?

A: You know, I wasn’t in the room. It’s certainly notable that he said nothing for two years and then issued a mea culpa two weeks before the book came out. But then, he has always been a private man. Perhaps he was being sincere but also self-interested — as are most of us most of the time.

Q: What is the lesson in WHEN GENIUS FAILED for the average American and investor?

Don’t believe the future will look like the past. History rhymes, as Twain said, it doesn’t repeat. Moreover, don’t think that more "sophisticated" investors possess some magic formula or key. They don’t, nor do all their computers and their "models." And finally, whenever someone is so confident that they run huge amounts of leverage—more than 30 times debt to equity in this case — run the other way. The one feature that does repeat, although in different forms, throughout financial history is that the people who get into trouble are the people who run up too much debt to survive a rainy day.

Q: Somehow it makes sense that LTCM was based in the secret, monied playground of Greenwich, Connecticut. Maybe a bunch of guys from Jersey would have handled this better.

A: Well I have a strong bias for Jersey guys, as you know. But I think what was important wasn’t the Greenwich locale per se but the partners’ distance from Wall Street. Seclusion fed the partners’ already inflated sense of superiority. If they had been rubbing elbows a little more with guys downtown, who knows?


From the Hardcover edition.

 

Q: Do you know if anyone from Long Term Capital Management has read WHEN GENIUS FAILED? Have you heard from any of them?

A: Yes. Some of Meriwether’s former partners, who are partners with him now in a new venture, asked me to make changes because they thought sections of the book would be harmful to their future fund-raising efforts. We, of course,
carefully reviewed and re-reviewed the accuracy of everything in the book but followed a "let-the chips fall where they would" policy with regard to what the reverberations would be.

Q: Was there any way to predict the demise of LTCM by looking at their investment style in the 1990s? Was anyone paying attention?

A: No — they had been a big success in the [19]90s. That was part of the problem. Their models looked backward and, based on that prior success, they invested as though they thought they couldn’t lose.

Q: Could LTCM have done more effective damage control to save the fund or did events spiral too quickly?

A: No — that was also part of the problem. Being so self-confident they also got way too big in positions, meaning that once the trouble hit it was impossible to get out without rocking the market even more. They were trapped.

Q: John Meriwether’s September 1998 letter to investors (informing them of their incredible losses) was surprisingly optimistic. Do you think he was being disingenuous at the time?

A: No. He believed his trades were good trades— that’s why he had gotten into them. As it turned out, they weren’t nearly so good as he thought — many have yet to recover. But that aside, he forgot that even good trades can go the
other way. This is what the book calls "the human factor." When people panic, markets don’t resemble what’s in a computer model. They go where the most nervous trader takes them.

Q: Why do you think the government has filed this incident away and refuses to address it in terms of regulation or legislation while Alan Greenspan simultaneously calls for less regulation?

A: We live in a time of unprecedented prosperity and bullishness. Regulations change (as during the New Deal) when times are bad. When times are good, nobody cares.

Q: The hubris you describe in WHEN GENIUS FAILED is more than most of us can imagine. Should the public treat Meriwether’s recent contrition (during interviews) as sincere?

A: You know, I wasn’t in the room. It’s certainly notable that he said nothing for two years and then issued a mea culpa two weeks before the book came out. But then, he has always been a private man. Perhaps he was being sincere but also self-interested — as are most of us most of the time.

Q: What is the lesson in WHEN GENIUS FAILED for the average American and investor?

Don’t believe the future will look like the past. History rhymes, as Twain said, it doesn’t repeat. Moreover, don’t think that more "sophisticated" investors possess some magic formula or key. They don’t, nor do all their computers and their "models." And finally, whenever someone is so confident that they run huge amounts of leverage—more than 30 times debt to equity in this case — run the other way. The one feature that does repeat, although in different forms, throughout financial history is that the people who get into trouble are the people who run up too much debt to survive a rainy day.

Q: Somehow it makes sense that LTCM was based in the secret, monied playground of Greenwich, Connecticut. Maybe a bunch of guys from Jersey would have handled this better.

A: Well I have a strong bias for Jersey guys, as you know. But I think what was important wasn’t the Greenwich locale per se but the partners’ distance from Wall Street. Seclusion fed the partners’ already inflated sense of superiority. If they had been rubbing elbows a little more with guys downtown, who knows?


From the Hardcover edition.

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